--%>

Explain Cost of capital aspect

Cost of capital aspect: Estimation of WCR is beneficial from the point of view of cost of capital too. A sound working capital position is beneficial from the point of view of both owners and lenders of the company. A sufficiently positive position means that the firm is able to meet all its short term needs even if they arise quickly. Therefore, the lenders will be secure in this scenario. For the owners, this situation means that the secure short-term lenders will extend them easy credit facilities and higher payment schedules. Thus, the impact on the overall situation will further get negated. The firm will be able to perform with lower cost of capital. Another aspect of large positive working capital is that it will mean lower level of long-term funds involvement thus, reducing the overall cost of capital for the firm. On the other side, if the WCR estimation turns out to be negative the firm will be able to identify the probable threats to its operations from existence of such situation and take corrective actions. This will help to bring down the possibility of any such occurrence and their impact period is minimized to a minimum. Some of the steps could be more lenient. Sales policy which would result in more sales in the market, paying off of unnecessary payables which only result in raising amount of current liabilities a without any productive use.

   Related Questions in Corporate Finance

  • Q : Relation between book value of shares

    Is the relation in between book value of shares or capitalization a good guide to investments?

  • Q : Problem on implied exchange rate a) The

    a) The Australian firm sold a ship to a Swiss firm and gave the Swiss client an option of paying either AUS10,000 or SF15,000 in 9 months. (i) In above, the Australian firm efficiently gave the Swiss client a free option to buy up

  • Q : State Transition Management Transition

    Transition Management: It is a financial service accessible to institutional investors who require making significant modifications to their portfolios, like merging, selling, or substantially restructuring them. This procedure can expose investors to

  • Q : What is Project Budget Project Budget :

    Project Budget: Collecting all costs related with completing a project is budget process. The Project Management Institute states that "aggregating the predictable costs of individual actions or work projects (establishing) an authorized cost baseline

  • Q : Who was the first to quantify the idea

    Who was the first to quantify the idea of Brownian motion?

  • Q : Explain Financial Management Financial

    Financial Management: It means organizing, planning, directing and controlling the financial activities like procurement and use of funds of enterprise. This means exerting general management principles to the financial resources of enterprise. <

  • Q : Tax benefits of lease FedEx would like

    FedEx would like to acquire 300 vans for its business. It can buy each van for $35,000, depreciate it completely over 5 years, and then sell it for $10,000. The tax rate of FedEx is 30%, and its cost of debt is 10%. Avis Fleet Rental will lease these vans to FedEx for

  • Q : Which data is the most suitable for

    Which data is the most suitable for finding betas?

  • Q : How companies accuse investors make

    Sometimes, companies accuse investors of performing credit sales which they make their quotations fall. Is it true?

  • Q : Zero coupon bonds problem Shana wants

    Shana wants to purchase 5-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 %. Supposing annual compounding, what would be the present market price of such bonds? (Round to the closest dollar.) (a) $1,023  (b) $665  (c) $890&nbs